INTC Intel Corporation

By Ted Greenwald 

Intel Corp. reported a surge in quarterly profit and raised its earnings forecast in a show of strength amid growing attacks from rivals in its core businesses.

Revenue rose 9% from a year earlier in the three months through July 1 to $14.8 billion, driven partly by strength in its divisions selling chips for personal computers and industrial-strength servers, the Santa Clara, Calif., company said Thursday.

Intel's shares were up nearly 1% in after-hours trading -- after initially surging more sharply -- as the company increased its estimates for full-year revenue and earnings per share.

Intel held 93% of the roughly $31 billion global market for the calculating engines in PCs and approached 100% share of the $16.5 billion world-wide market for server processors last year, according to Mercury Research. That leaves it almost no room to grow.

The company has been spending heavily to spur growth in new areas, and some of those investments are beginning to pay off.

"We are executing well to our strategy to transform from a PC-centric company to a data-centric company that powers the cloud and billions of smart, connected devices," Intel Chief Executive Brian Krzanich said Thursday on a conference call.

Total profit in the latest period rose by more than 110% from the same quarter last year, when Intel recorded a large restructuring charge. Excluding the restructuring charge, profit rose 23%. Intel said it expects full-year adjusted earnings of $3 a share on $61.3 billion in revenue. It previously expected earnings of $2.85 a share on $60 billion in revenue.

Intel's server chips face rising competition from Nvidia Corp.'s graphics processors, which have proven especially efficient in some artificial tasks.

Intel has said it would introduce its own AI-focused Nervana chips later in the year.

Advanced Micro Devices Inc. in June launched a direct assault on Intel's server chips. Its Epyc line is aimed squarely at the lower half of Intel's data-center offerings, which accounted for roughly 80% of its 2016 server-chip sales, according to Bernstein Research. Epyc hit the market too late to be reflected in either chip maker's second-quarter results.

Intel fired back in July with an upgraded line of server chips called the Xeon Scalable Platform intended to one-up AMD's performance.

Challenging Intel's stronghold in PCs, AMD debuted its Ryzen desktop chips in March, giving Intel its first full quarter of serious competition in that market in years, and has said it expects to introduce laptop units later this year.

Intel responded in late May with an upgraded line of PC processors it calls Core X claiming superior performance but generally maintaining higher prices. It has said it would launch a new laptop chip later this year manufactured using a next-generation fabrication process.

Revenue at Intel's unit responsible for PC chips rose 12% from the prior-year quarter. Personal computer sales have been in a persistent decline as consumer spending shifts to mobile devices, though Intel's ability to drive sales of higher-priced chips has compensated somewhat. That unit saw an 8% increase in average prices and a 3% increase in volume.

Revenue in the division that sells server processors, a market central to the chip giant's future, rose 8.6%. Intel Chief Financial Officer Bob Swan attributed the growth to sales to cloud providers and network providers. Sales to corporate customers declined 11% in the quarter and will fall at a rate in the high single digits this year, he said -- faster than the company's previous estimate.

Intel reaffirmed its expectation that data-center revenue would grow in high single digits for the full year, after revising its guidance downward from double digits earlier. The company aims to use its server-chip business to drive further revenue from related products such as data storage.

Intel is in the process of buying Israeli car-camera pioneer Mobileye NV for $15.3 billion. The company expects the deal to close in the third quarter, it said on Thursday, earlier than its previous estimates.

Opportunities in memory, automotive, mobile, and the Internet of Things will amount to a total market of $220 billion by 2021, Intel has said.

In all for the quarter, Intel reported profit of $2.8 billion, compared with $1.3 billion in the same quarter last year. The latest earnings figure translated to 58 cents a share, or 72 cents a share on an adjusted basis, excluding restructuring charges and certain items arising from acquisitions. Analysts surveyed by Thomson Reuters expected adjusted earnings of 68 cents per share on $14.4 billion in revenue.

Write to Ted Greenwald at Ted.Greenwald@wsj.com

(END) Dow Jones Newswires

July 27, 2017 19:19 ET (23:19 GMT)

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